Asymmetric competition among nation states: A differential game approach

• 成果类型: Article
• 署名作者: Han, Yutao; Pieretti, Patrice; Zanaj, Skerdilajda; Zou, Benteng
• 署名单位: University of International Business & Economics; University of Luxembourg
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2014.07.008
• 发表日期: 2014
• 页码: 71-79
• 关键词: Tax/public input competition; Open-loop/Markovian strategies; differential games

摘要

This paper analyzes the impact of foreign investments on a small country's economy in the context of international competition. To that end, we model tax and public input competition within a differential game framework between two unequally sized countries. The model accounts for the widely recognized characteristic that small states are more flexible in their political decision-making than larger countries. However, we also acknowledge that small size is associated with limited institutional capacity in the provision of public services. The model shows that the long-term outcome of international competition crucially depends on the degree of capital mobility. In particular, we show that flexibility mitigates against - but does not eliminate - the likelihood of collapse in a small economy. Finally, we note that the beneficial effect of flexibility in a small state increases with its inefficiency in providing public services and with the degree of international openness. (C) 2014 Elsevier B.V. All rights reserved.